There have been numerous types and kinds of residential mortgage plans used to facilitate the financing of real property, such as residential buildings. In this regard, a lender typically loans money to a borrower who is purchasing a residence, and the loan is collateralized pursuant to a mortgage plan, which includes a mortgage lien on the legal title to the residence. The legal terms and conditions of the mortgage plan have varied from time to time, but they have usually included payment provisions requiring the borrower to pay back the loan in equal monthly installments, wherein each installment includes a principal payment portion and an interest payment portion. In this regard, the monthly payments are made by the borrower over the length of the mortgage term, until the payments are made in full, or the mortgage is prematurely paid off.
One of the more significant problems associated with conventional mortgage plans, has been that the lending institution, such as a bank or savings and loan company, must agree to a certain interest rate for the loan over a long period of time, such as thirty years. Over such a substantial time interval, the current market interest rates can increase greatly over the interest rate specified in the mortgage plan. Thus, the loan institution may not receive an adequate return on its investment over the term of the mortgage plan. As a result, the lending institution can become financially impaired, where a large number of such mortgage plans have been implemented.
In an attempt to overcome this problem, adjustable rate mortgage plans have become popular. With such a plan, the interest rates fluctuate with certain interest indicators, such as government treasury bills, the prime interest rate, or others. However, such mortgage plans are not entirely popular with many borrowers, because the interest rates can increase substantially beyond a point where the amount of the mortgage payments far exceed the ability of the borrower to make the payments. Such a circumstance can easily occur, sometimes even in a sudden manner, where the borrower is not financially prepared for such large payments. As a result, the borrower is unable to make the mortgage payment, and the loan institution may foreclose on the mortgage. In such circumstances, a very unfortunate situation results for both the lending institution and the borrower.
In an attempt to provide a mortgage plan which overcomes these problems, it would be highly desirable to have a mortgage plan, which is of a type having a fixed interest rate to protect the borrower, and which enables the lending institution to be protected in the case of rising interest rates. In order to accomplish this, it would be well to have the mortgage plan include an investment vehicle, which is interest sensitive, and which is established and maintained primarily for the benefit of the lending institution. Thus, should interest rates rise, the borrower makes the same fixed interest payments, and the lending institution is protected by the interest sensitive investment vehicle. As a result, the investment vehicle partially collateralizes the loan.
However, in order to accomplish such an approach, the lending institution would necessarily be required to establish and monitor the investment vehicle over the life of the mortgage plan. Such monitoring on a periodic basis, such as a monthly basis, would not be readily feasible, nor practical, for a lending institution. In this regard, the lending institution is not in the business of monitoring such investments, and to include such an investment in the mortgage plan, would be an inordinate amount of work, and thus too great an expense to pass along to the borrower.
The work required to monitor the investment during the term of the mortgage, would be beyond the reasonable capabilities of the lender. Also, since it would be highly desirable to switch to different investment vehicles during the term of the mortgage, such capability would also be outside the ordinary and reasonable capabilities of most, if not all mortgage lending institutions.
Another highly desirable feature of such a residential mortgage plan, difficult or impossible to implement for most lenders, is the portability feature. With such a feature, the borrower can sell his or her real property, and purchase a new property by transferring the existing mortgage to the purchase of the new property. Such a series of transactions is too difficult to monitor by the lending institution, and thus a new mortgage is ordinarily established each time.
Therefore, it would be highly desirable to have a system which would facilitate the establishment and ongoing administration of a mortgage plan, which is partially collateralized with an investment vehicle, in such a manner that the lending institution is not overly burdened with expense and time relating to such an elaborate and desirable mortgage plan. Such a new mortgage plan should be or able to be implemented, such that the investment vehicle can be monitored conveniently, and even switched subsequently for a more advantageous one. Also, such a system should facilitate the implementation and administration of a mortgage plan which would provide advantages for the borrower, as compared to conventional mortgage plans. For example, the after tax cost should be less as compared to existing mortgages, and such a new plan should enable the mortgage to be portable for the borrower, without undue expense and burden to the lender.